WSJ’s Zweig: Bull Market Erases Investor Memories of 2008-09 Crisis

Many investors have grown so excited over the stock market’s gains to five-year highs that they are forgetting about the losses they suffered during the financial crisis — much to their detriment, says Wall Street Journal columnist Jason Zweig.

The Standard & Poor’s 500 Index plunged 58 percent from its October 2007 record high to its March 2009 trough.

Top discount brokerages TD Ameritrade, E*Trade, Charles Schwab, Fidelity Investments and Scottrade garnered $170 billion in retail assets during the first three quarters of 2012, according to Ana Avramovic, a trading strategist at Credit Suisse.

Many financial advisers are in the same boat as Derek Tharp of Mote Wealth Management in Cedar Rapids, Iowa, who tells Zweig he has clients who are “rewriting history.”

While, they’re now gung ho on stocks, some of these same clients sent him long, frantic emails late at night in 2008 and 2009 “to explain exactly why this was the end of the financial markets, and they needed to get out now,” Tharp says. But now “they’ve put it out of their memory.”

Zweig’s conclusion: “it is vital to evaluate whether you suffer from investing amnesia and, if you are, to counteract it before it is too late.”

One way is to keep an investment diary, so you can see how your investments really fared and how you felt about in the past, he says.

Your old account statements will give you the hard, cold facts. And you may gain insight from asking close friends or your spouse about how you reacted in the last downturn.

James Rickards, senior managing director of Tangent Capital Partners, says investors will ultimately have plenty of opportunity to remember how they felt the last time stocks went bust.

That’s because the Federal Reserve’s massive easing program is creating a bubble in the stock markets, he tells Newsmax TV.

“Equity prices are higher, … but they’re higher for the wrong reason. They’re higher because of money printing. In other words, these are new asset bubbles forming.”

To be sure, Rickards isn’t looking for the stock bubble to burst yet. “One of the things we know about bubbles is they go on a lot longer than people expect.”